Journal of Financial Economics2013-09-05 2:57 AM

Institutional trading and stock resiliency: Evidence from the 2007–2009 financial crisis

Abstract We examine the impact of institutional trading on stock resiliency during the financial crisis of 2007–2009. We show that buy-side institutions have different exposure to liquidity factors based on their trading style. Liquidity supplying institutions absorb the long-term order imbalances in the market and are critical to recovery patterns after a liquidity shock. We show that these liquidity suppliers withdraw from risky securities during the crisis and their participation does not recover for an extended period of time. The illiquidity of specific stocks is significantly affected by institutional trading patterns; participation by liquidity supplying institutions can ameliorate illiquidity, while participation by liquidity demanding institutions can exacerbate illiquidity. Our results provide guidance on why some stocks take longer to recover in a crisis.

KEYWORDS

SHARE & LIKE

COMMENTS

ABOUT THE AUTHOR

Journal of Financial Economics

The Journal of Financial Economics or JFE is a peer-reviewed academic journal covering theoretical and empirical topics in financial economics. Together with the Journal of Finance and the Review of Financial Studies, it is considered to be among the top three finance journals.

0 Following 15 Fans 0 Projects 104 Articles

SIMILAR ARTICLES

Abstract We provide evidence that incumbent and entrant firms' access to business group deep pockets affects the entry patterns in product markets. Re

Read More

Abstract This paper explores the implications of filtering and no-arbitrage for the maximum likelihood estimates of the entire conditional distributio

Read More

Abstract This paper considers the term structure of interest rates implied by a production-based asset pricing model in which the fundamental drivers

Read More

Abstract How do differences of opinion affect asset prices? Do investors earn a risk premium when disagreement arises in the market? Despite their fund

Read More

Abstract We examine whether access to management at broker-hosted investor conferences leads to more informative research by analysts. We find analyst

Read More

Abstract The literature on distressed firms has focused on these firms’ investment, capital structure, and labor decisions. This paper investigates a n

Read More

Abstract We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depressi

Read More

Abstract We investigate a prominent allegation in congressional hearings that Moody׳s loosened its rating standards to chase revenue after it went publ

Read More

Abstract: We exploit the deregulation of interstate bank branching laws to test whether banking competition affects innovation. We find robust evi

Read More

Abstract We use industry valuation differentials across European countries to study the impact of membership in the European Union as well as the Euro

Read More